Facing up to the Twin Deficits

Abstract

A year ago, in appearing before the House Banking Committee to discuss the Federal Reserve's monetary policy for the year ahead, I emphasized that, after too many years of pain and instability, we had an enormous opportunity to sustain growth for years to come in an environment of much greater price stability. Today, after a year of strong recovery, that sense of the opportunities before us has only been reinforced. The simple fact is that the economy moved ahead faster, and unemployment dropped more sharply, than we or most others thought at all probable. At the same time, the inflation rate dropped further, to the point that producer prices were almost unchanged over the year as a whole and consumer prices rose by less than at any time over the past decade. The fact that we were able to combine strong growth with good price performance is what is so encouraging. It is the key to lasting